A dividend is not a gain! Nor is the offsetting decline in stock price a loss.
So what is a dividend? Here’s the definition I unpack in an article on Advisor Perspectives: 𝘈 𝘥𝘪𝘷𝘪𝘥𝘦𝘯𝘥 𝘪𝘴 𝘢 𝙨𝙖𝙡𝙚 𝙤𝙛 𝙨𝙩𝙤𝙘𝙠 𝘧𝘰𝘳𝘤𝘦𝘥 𝘶𝘱𝘰𝘯 𝘦𝘷𝘦𝘳𝘺 𝘪𝘯𝘷𝘦𝘴𝘵𝘰𝘳 𝘣𝘺 𝘵𝘩𝘦 𝘤𝘰𝘮𝘱𝘢𝘯𝘺 𝘪𝘯 𝘸𝘩𝘪𝘤𝘩 𝘵𝘩𝘦𝘺 𝘢𝘳𝘦 𝘪𝘯𝘷𝘦𝘴𝘵𝘦𝘥, 𝘪𝘯 𝘦𝘹𝘤𝘩𝘢𝘯𝘨𝘦 𝘧𝘰𝘳 𝘤𝘢𝘴𝘩 𝘵𝘰 𝘸𝘩𝘪𝘤𝘩 𝘵𝘩𝘦𝘺 𝘢𝘭𝘳𝘦𝘢𝘥𝘺 𝘩𝘢𝘥 𝘢 𝘤𝘭𝘢𝘪𝘮, 𝘧𝘰𝘳 𝘸𝘩𝘪𝘤𝘩 𝘵𝘩𝘦 𝘨𝘰𝘷𝘦𝘳𝘯𝘮𝘦𝘯𝘵 𝘥𝘦𝘮𝘢𝘯𝘥𝘴 𝘺𝘰𝘶 𝘱𝘢𝘺 𝘵𝘢𝘹𝘦𝘴 𝘰𝘯 𝘵𝘩𝘦 𝘦𝘯𝘵𝘪𝘳𝘦 𝘵𝘳𝘢𝘯𝘴𝘢𝘤𝘵𝘪𝘰𝘯 𝘪𝘯𝘴𝘵𝘦𝘢𝘥 𝘰𝘧 𝘫𝘶𝘴𝘵 𝘵𝘩𝘦 𝘱𝘰𝘳𝘵𝘪𝘰𝘯 𝘵𝘩𝘢𝘵 𝘳𝘦𝘱𝘳𝘦𝘴𝘦𝘯𝘵𝘴 𝘢𝘤𝘤𝘳𝘶𝘦𝘥 𝘤𝘢𝘱𝘪𝘵𝘢𝘭 𝘨𝘢𝘪𝘯𝘴.
This doesn’t mean a dividend is 𝘣𝘢𝘥.* If the choice is between returning cash to shareholders or reinvesting it in NPV-negative projects, returning cash is better. But a return 𝘰𝘧 capital is not a return 𝘰𝘯 capital!
The article also digs into some of the myths that arise from the mistaken view of dividend-as-gain (and loss), not least the crazy mathiness of “price return” vs. “total return” indexes.
https://www.advisorperspectives.com/articles/2025/03/31/dividend-not-gain-or-loss
(Last note: While some of the article content is above the “Basic Reading” level at which we’ve tagged this blog post, understanding the basic concept that a dividend is not a gain is a great way for a beginning investor to avoid a great deal of confusion on their learning journey!)
*As you might guess, though, I think buybacks are generally preferable.
DISCLOSURES: All content is provided solely for informational purposes and should not be considered an offer, or a solicitation of an offer, to buy or sell any particular security, product, or service. Round Table Investment Strategies (Round Table) does not offer specific investment recommendations in this presentation. This article should not be considered a comprehensive review or analysis of the topics discussed in the article. Investing involves risks, including possible loss of principal. Despite efforts to be accurate and current, this article may contain out-of-date information; Round Table will not be under an obligation to advise of any subsequent changes related to the topics discussed in this article. Round Table is not an attorney or accountant and does not provide legal, tax or accounting advice. This article is impersonal and does not take into account individual circumstances. An individual should not make personal financial or investment decisions based solely upon this article. This article is not a substitute for or the same as a consultation with an investment adviser in a one-on-one context whereby all the facts of the individual’s situation can be considered in their entirety and the investment adviser can provide individualized investment advice or a customized financial plan.